Monthly Archives: September 2016

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And the list of offenses just keeps growing…

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As Wells Fargo CEO John Stumpf continued to get a much-deserved beating by Congress today, the bank now finds itself staring down the wrong end of a Justice Department sanction. The reason? It seems Wells Fargo improperly repossessed cars owned by…wait for it…members of the military. That’s right. Wells Fargo was screwing over the very folks who defend this country. Is your stomach done churning yet? The bank apparently violated the Service-members Civil Relief Act and both Federal prosecutors and the Office of the Comptroller of the Currency have big plans for the bank that have nothing to do with stock options and hefty bonuses. It’s borderline-disturnbing that Wells Fargo proudly proclaims on its website that it has “a history of making banking easier for our servicemen and servicewomen.” If found guilty, Wells Fargo could end up forking over an estimated $20 million in penalties. That would be in addition to the $185 million that Wells Fargo was fined for opening up those two million fraudulent accounts. Sadly, Wells Fargo isn’t even the first bank to repossess vehicles from service people who were delinquent on their loans. Banco Santander had to pony up $9 million last year for similar actions.

Blame it on Reddit…

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Looks like the discount days are over at Tesla where CEO Elon Musk sent out an email to his employees telling them to stop the practice. Apparently, Tesla has a “no negotiation no discount policy” that was in effect since day one, ten years ago when consumers could first start purchasing the battery-operated vehicles. Musk isn’t even into discounts for employees – which I think is a bit unfair. Just saying. No discounts even when the average vehicle discount in the U.S. is just under $4,000. Of course, discounts can still be applied to floor-model vehicles, test-drive vehicles and vehicles that were damaged during delivery. But for brand-spankin’ new Model S cars, which sell – or should anyway – for about $100,000, don’t even bother calculating their costs other than what the sticker price says. This whole hoopla came about because someone on Reddit posted a question about discounts for Tesla vehicles. The responses to the question did not sit well with Musk, or with analyst Brad Erickson of Pacific Crest Securities. In a research note, Erickson suggested that Tesla was getting loose with discounts in an effort to sell more cars for its third quarter – of which 22,000 were delivered. That figure, by the way, is a 90% increase over last year at this time. But considering that Tesla has posted an operating loss for 14 consecutive quarters, I suppose there some logic at hand.

Fizzy logic…

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Nick Caporella, the CEO behind the fan favorite drink LaCroix, probably isn’t felling too bubbly right about now. Glaucus Research Group just released a very unflattering report about the Florida-based company, basically accusing it of cooking the books. The report also says Caporella used false invoices and other forms of creative accounting to inflate earnings when they weren’t quite where he wanted them to be. In all fairness, Glaucus has a short interest in the company, in the form of 2.26 million shares. If National Beverage’s stock falls, Glaucus stands to gain a sizable chunk of cash. And that’s exactly what happened as National Beverage’s stock took an 8% hit today despite calling the report “false and defamatory.” It seems some of Glaucus’ research came from a failed 2012 lawsuit from a former associate. In any case, shares of National Beverage were up 58% in the last twelve months – that is, up until its recent drop. Interestingly, the soft drinks National beverages sells, including Faygo and Rip It energy drinks, sell for 40% less than Pepsico’s offerings, yet both companies have the same reported operating margin. Weird, right? Another unusual tidbit is that despite National Beverages major increases in profit and revenue, its advertising and shipping costs remained flat, according to Glaucus’ report at least. Last month the company reported first quarter earnings where revenue was up 17% to $217 million and profit was up 69% to $29 million. Not bad for a company that basically sells fizzy flavored water and Shasta – remember that one? In the meantime the SEC is staying mum on the subject and the stock closed at $42.67.

Smacked…

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The hits just keep on coming for Wells Fargo as the great state of California gave the bank a major diss in the form of a year-long suspension of its business relationships. The bank is officially barred from underwriting debt and handling bank transactions for the Golden State. And if Wells Fargo still can’t get its act together, it can expect a “complete and permanent severance.” Yikes. I guess that’s what happens when you open up 2 million fraudulent accounts and according to State Treasurer John Chiang, promote “a culture which actively promotes wanton greed.” More yikes. Since Chiang oversees $2 trillion worth of banking transactions, besides managing a $75 billion investment pool, he’s probably a bit sensitive about the way banking institutions handle all that money. In the meantime, Wells Fargo CEO John Stumpf will kiss goodbye his $41 million in unvested stock awards. Carrie Tolstedt, who oversaw the division that was responsible for green lighting the fraudulent accounts, loses all of her unvested awards and gets no further retirement benefits. Other than the really good ones she already received.

Awkward…

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Fed Chairwoman Janet Yellen took a beating today from Congressman Scott Garrett over Lael Brainard’s chummy relationship with Hillary Clinton. Brainard, in case you might not know, is the governor of the Fed and is rumored to be the top pic for Treasury Secretary. She also gave $2,700 to the Clinton campaign. Congressman Garrett doesn’t take too kindly to this appearance of impropriety and asked the Chairwoman if this doesn’t pose a conflict of interest for the Fed, seeing as how Brainard is in talks with the Clinton campaign. After all, the Fed is supposed to be non-partisan. Yellen, said she was’t aware that there was, in fact, a conflict while also maintaining that the Central Bank has no biases as far as politics are concerned. Of course, Donald Trump disagreed vehemently with that assessment during Monday night’s presidential debate when he insisted that the Fed is keeping rates low to make Obama look good. Incidentally, Janet Yellen chaired President Bill Clinton’s Council of Economic Advisers. Besides all that, there apparently is no issue with Fed officials giving money to campaigns. Who knew.

Oh the perks…

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Consider this next bit a public service announcement: Thursday September 29 marks National Coffee Day. Yes, that’s a real thing. And before you whip out your wallet, you might want to know which eating establishments wont be charging you for your java fix. If you happen to be near a Krispy Kreme store, then I urge you to step inside. Rumor has it you’ll score a free coffee and glazed donut just for showing up. But be sure to say thank you! Manners are key. If you’re a fan of Wawa coffee, then you’re in luck as that chain is also offering free cups of its brew. Particpating 7-Elevens are also giving out free coffee. Just make sure you have their smartphone app and register for its 7Rewards program. Dunkin’ Donuts will offer medium-sized cups of coffee for just 66 cents in honor of the company’s 66th birthday. As for Starbucks, don’t expect any freebies. Ever. However, the company is affording you the opportunity to be charitable. For every brewed cup of Mexico Chiapas Starbucks sells, the company will donate a coffee tree to Latin American growers whose crops have been destroyed by fungus.

Corporate America Blues…

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Sheryl Sandberg had some thoughts to share with world today in the Wall Street Journal. And when the founder of LeanIn.org and COO of Facebook has thoughts, it’s in everyone’s best interest to hear them loud and clear. Sandberg wrote about the results of a 2016 study of Women in the Workplace, arguably the most comprehensive annual review of women in corporate America. With 132 companies and more than 4.6 million employees surveyed, the results might shock you, but will mostly disappoint. And here’s why: Women continue to face social pushback for daring to ask for what they deserve. Gasp! Apparently such actions are still viewed as “bossy” and “aggressive.” And that is so weird because men are not viewed that way at all for the same actions. Go figure. But then there’s also the fact that women are underrepresented at every single level and hold less than 30% of senior management roles. As if that’s not bad enough, women are also less likely to get promoted from entry level positions to managerial ones and lose ground the higher they climb up that golden corporate ladder. The news only gets worse for women of color as they are the most under-repped group with the steepest drop-off as they get to middle and senior management. There is hope, though, as more women are asking and getting promotions and raises. They are negotiating those items just as much as their male counterparts. Unfortunately, women are still less likely to get promoted. Which is bananas since research has shown that gender diversity helps businesses get better results, revenue and profit. Sandberg suggests companies set targets, openly discuss gender stereotypes and start helping businesses get better through gender diversity. Let’s hope 2017’s study shows some markedly different results.

Speaking of a lack of diversity…

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When you count the FBI and U.S. Army as your clients, showering you with hundreds of millions of dollars in contracts, it’s best to foster a diverse workplace that shuns the slightest hint of discrimination. And so we have Palantir Technologies, a data mining company founded by Peter Thiel that is rumored to be valued at about $20 billion. The Labor Department is suing Palantir Technologies over discrminination practices against Asian applicants. If the name Palantir Technologies sounds vaguely familiar, it’s because the company’s resources helped track down Osama Bin Laden. Osama Bin Laden aside, the Labor Department believes the company routinely discriminated against Asian applicants for software engineering jobs. In one example, out of an applicant pool of 130 for an intern position, where 73% of the applicants were Asian, only four Asians were actually hired along with 17 non-Asians. Palantir charges that the Department of Labor was using “flawed statistical analysis,” yet the Labor Department contends that there is just a one in a billion chance that that selection happened by chance. At least Palantir will be in good company as Facebook and Twitter were also sued for discrimination…by Asian-American women.

And then there’s Wells Fargo…

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The Board of Directors at Wells Fargo might just be clawing back some of the lofty compensation awarded to CEO John Stumpf and former head of community banking Carrie Tolstedt. That decision will be made on Thursday when Mr. Stumpf gets to testify before the House Financial Services Committee to talk about the two million credit and debit cards that were opened without authorization – under the department that Tolstedt ran. Tolstedt conveniently retired in July, by the way. The big question remains as to how much will be clawed back from Stumpf and Tolstedt. Stumpf took home about $160 million while Tolstedt walked away with around $90 million. Not too shabby considering the massive fraud that happened under their watch. And as I mentioned in an earlier post, no top level employees were fired or penalized, yet many many low level employees were given their walking papers. Which is weird because lower-level employees usually just follow the orders they’re given. After all, acting unilaterally in a major banking institution is typically frowned upon. Meanwhile, as Wells Fargo continues to stay mum on the subject, the Department of Labor is launching an investigation into the bank’s questionable workplace practices.

Miss-stated…

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Let’s give it up for Mylan CEO Heather Bresch for providing us with some fiscal humor today. In case you missed it, she told Congress last week that poor little Mylan only makes $50 on each EpiPen 2 pack for which it charges $600. But the darndest thing happened. It seems that, for some strange reason, when Mylan calculated its sales and profit figures to present to Congress, the pharmaceutical company applied a statutory U.S. tax rate of 37.5%. Which is so weird because Mylan re-domiciled in the Netherlands in order to pay less taxes. In fact, last year Mylan paid a rate of 7.4%. And that’s even weirder because at that rate, Mylan’s profits come in closer to $160 per pack. The company sells over 4 million packs a year. If that’s not a $240 million arithmetic discrepancy, then I don’t know what is. Several members of Congress had strong opinions on Ms. Bresch’s capacity for honesty and presumably, math. Representative Buddy Carter (R-GA), who as luck would have it is also a pharmacist in real life, called Mylan’s creative pricing a “shell game.” Shares of Mylan dropped a smudge. Oh well.

Vattene!

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After less than two years on the job, Lands’ End CEO Federica Marchionni is out effective immediately. The now-ex CEO, who held posts at Dolce and Gabbana and Ferrari, just couldn’t seem to bring a luxurious vibe to a very middle America brand. Go figure. To be fair, the Wisconsin-based company is giving her credit for helping Lands’ End sow the seeds towards becoming a global lifestyle brand. Which is incredibly heart-warming. She probably didn’t help her cause when she interviewed Gloria Steinem for the company’s Spring catalog. At first she ticked off the anti-abortionists just for featuring the iconic yet controversial figure. After all, the company does sell a lot of uniforms to Catholic schools. I’m pretty sure there’s a joke in there, but I’m not inclined to look for it. Then she managed to tick off the pro-choicers when she apologized to the anti-abortion activists for writing about Steinem in the first place. You can’t win, I tell you. In the end, however, it did all come down to money, and Ms. Marchionni didn’t really make any for the company. Lands’ End sales were down 7% last year while shares were down 33% for the year. To add insult to fiscal injury, shares are down again today 11%, perhaps because the company now finds itself looking for its third CEO in just over two years.

Tweet tweet, squeak squeak…

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Could Twitter be going to the rodents? That might not be such a bad thing if word on the street – Wall Street, that is – is true. Rumor has it that Disney is making a play for the social media company along with Google and Salesforce. Shares have been going up on the news since Friday and those shares need all the help they can get as Twitter continues its struggle to increase revenue. But the House of Mouse rumblings seem to have the most traction with talk that the company is currently working on a potential bid for Twitter. Interestingly enough, Twitter CEO Jack Dorsey sits on the Disney board so an acquisition isn’t so far-fetched. And since Disney’s biggest biz, cable television, has been losing ground to online streaming services, Disney Chief Bob Iger has been investing heavily in tech, thereby making a Twitter acquisition a very logical move. Twitter itself is looking to evolve into a bona fide media company, already offering live streaming NFL Thursday Night Football and the Presidential debates that air tonight. That focus will fit in nicely at Disney. Twitter’s hoping an acquisition deal will put the company’s value at a meaty $30 billion. And who doesn’t like the sound of $30 billion?

Out of breach…

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As if things couldn’t get any dicier at Yahoo, the company is now facing the wrong end of a security breach with roughly 500 million Yahoo accounts caught in the fray of the company’s core internet business. And all this as Yahoo hopes to close a $4.8 billion deal with Verizon so the telecom giant can acquire those compromised core internet assets. It seems talk of a breach surfaced way back in August when a story broke out about a hacker, who goes by the name “Peace,” sold a ton of personal info that included birthdates, usernames, scrambled passwords etc. for the price of three bitcoins. In case you were wondering, because I know you were, that’s around $1,800. The question of the day is should Yahoo have come clean about the breach sooner and been a bit more proactive? After all, there are laws regarding breaches in 48 states that stipulate that companies must alert affected customers within a certain amount of time. But Yahoo might be in the clear since no social security numbers or other financial information was supposedly involved. For those who have Yahoo accounts and want to take additional precautions, besides changing passwords, they can visit http://www.identitytheft.gov.

Denied…

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Tesla’s not very happy with Michigan right now as evidenced by the lawsuit it filed against the state and its Governor Rick Snyder. Tesla is screaming foul, calling a 2014 Michigan law unconstitutional, because it seems to have been designed to protect auto titan and Michigan darling, General Motors. Apparently, the Great Lake state doesn’t take kindly to automakers selling their cars directly to (gasp!) consumers and refuses to issue a dealership license to the maker of the pish-posh battery-operated cars. Car salesmen find Tesla’s business model positively odious because it has the car company selling its motorized wares directly to the folks who will ultimately be driving them, thereby cutting out the middleman i.e. car salesmen. Tesla, which is also suing Michigan Attorney General Bill Schuette and Secretary of State Ruth Johnson – her department officially rejected Tesla’s license application – is hoping a judge strikes down the the law because it impedes commerce between states. Tesla is currently barred from selling and repairing its cars in Michigan, as well as not being licensed to sell them in Connecticut, Texas and Utah.

IPO glam…

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There’s a new darling on Wall Street and this time it’s one that has very little to do with tech. Enter e.l.f. beauty – which stands for eyes, lips, face (duh!) – a cosmetics company with 9 stores in the New York area, two stores in the L.A. area and is also sold in 19,000 retail locations including Walmart and Target, of course. E.l.f., which trades on the NYSE exchange under the ticker symbol ELF, is positively fabulous if only because of its super-special price point: it’s considerably lower than other brands with most of its products selling for $6 or less. Backed by private equity firm TPG, the IPO was set to debut between $14-$16 a share, but was then later priced at $17 per share with 8.3 million shares up for grabs. None of that seemed to matter when it opened this morning at $24 a share and then soared 59% to $27.09. That gave the company a value of over $1 billion which is not bad for a company that sells a bargain product in a very crowded $57 billion global cosmetics industry.

D’oh!

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There are few things life more stupid than pissing off Senator Elizabeth Warren (D-MA). Yet Wells Fargo CEO John Stumpf managed to do just that with his prepared, yet sometimes absurd remarks that were carefully crafted for his much deserved beating by the Senate. That beating came after the bank had to cough up a $185 million fine because employees opened up more than two million unauthorized checking accounts and credit cards. Senator Warren said, among many other colorful things, that Stumpf demonstrated “gutless leadership” and called for him to be personally criminally investigated by both the Department of Justice and the SEC. Yowza. Stumpf did attempt to explain that Price Waterhouse Coopers was brought in to review the accounts in 2015. The problem is that Senator Sherrod Brown (D-OH) wondered very loudly why Wells Fargo didn’t do that immediately after a scathing L.A. Times article came out exposing the scandal way back in 2013. In the meantime, Carrie Tolstedt, who headed the retail banking business that oversaw the fraudulent accounts, retired in July with $125 million from a previous stock compensation. Of course, the bank’s top executives attempted to point the finger at lower level employees who made between $35,000 – $60,000 a year. Wells Fargo fired 5,300 employees in the last few years for improper conduct tied to the fraudulent accounts. Senator Bob Menendez (D-NJ) made sure to ask Mr. Stumpf how much he took home last year: $19.3 billion was the answer. John Stumpf is still very much gainfully employed and is apparently “deeply sorry.”

Give a shot…

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West Virginia joins the list of states gunning for Mylan ever since the company hiked the price of their life-saving EpiPen drug to $600 for a 2-pack. Mylan argues that it recoups less than half of that $600 Epipen price tag yet the drug accounts for 40% of the company’s operating profits. The state’s attorney general, Patrick Morrisey is going after the drug-maker, filing a petition to find out information that might just lead to some very unpleasant Medicaid fraud charges for Mylan. The subpoena could determine whether Mylan underpaid on rebates so that it could participate in the state’s Medicaid program. And while Mylan has yet to comment, its CEO Heather Bresch has a very unpleasant date planned for Wednesday with the House Committee on Oversight and Government Reform. You might have heard that her father is Senator Joe Manchin (D-W.VA) Awkward. Also problematic, in terms of West Virginia’s Antitrust Act, is how Mylan sued Teva Pharmaceuticals for patent infringement when the latter wanted to make a considerably cheaper, generic version. The two companies settled but in the meantime, blame it on the FDA for not yet approving the generic version. This latest investigation, by the way, is completely separate from New Attorney General Eric Schneiderman’s investigation.

Nothing to sea here folks….

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More rough waters for SeaWorld Entertainment (SEAS) as the theme park company hit a new low today of $11.77. While it did rebound a bit, the company still plans to issue its last dividend – 10 cents a share – on October 7, which is down from the 21 cents it had previously issued. But after that, the dividend will be put on hold…indefinitely. Instead, SeaWorld will use that money to buy back shares as the company stares at a future without killer whales in captivity. Starting next year, SeaWorld in San Diego will bid a salty farewell to its Orca shows, with San Antonio and Orlando following suit in 2019. The brutal publicity from the 2013 Orca documentary, Blackfish, has put a significant damper on earnings and attendance at the theme parks, with visitors down 8% to about 6 million for the year. Interestingly, SeaWorld thinks the drop in attendance has more to do with other factors like Tropical Storm Colin and a shift in holidays. Whatever the real reason is, the fact remains that revenue was down 5% to $371 million from last year’s $392 million for the same period. Add to that a drop in profit of $5.8 million from $17.8 for the same quarter last year and you’ve got yourself a hot fiscal mess.

Diss-crminate…

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Airbnb said sorry. Not because of all the discrimination that occurs on its site but because Airbnb was on the slow side when it came to responding to complaints about racist hosts and all the horrible stories surrounding #AirbnbWhileBlack. So, like any major company hit with a scandalous fiasco, Airbnb, which has a valuation around $26 billion and hosts in more than 30,000 cities, has come up with a new set of policies it hopes will act as a deterrent to those who wish to practice discrimination. Now, if would-be hosts claim that their lodgings are unavailable for certain dates, Airbnb will not allow those users to re-list their lodgings at a later time for the same-exact dates. While the site plans to reduce the significance of profile photos, critics argue that there shouldn’t even be any photos of hosts and guests. That way host discriminators can’t claim their lodgings are “unavailable” based on the color of a guest’s skin and guests wouldn’t be able to choose accommodations based on a host’s race and/or ethinicity. Airbnb, however, disagrees and feels that photos are a security measure that allows hosts and guests to recognize each other. Just for good measure, former ACLU head Laura Murphy and former U.S. Attorney General Eric Holder were brought in to consult and institute the new company policies.

No credit to you…

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Fraud hurts. Just ask Wells Fargo, now that it will be choking down more than $185 million in the form of fines and penalties for pushing customers to open accounts that they didn’t want. According to the Consumer Financial Protection Bureau, the largest U.S. bank opened some 2 million fee-generating accounts that were probably not authorized. Of those, 565,00 unwanted credit card accounts were opened. This was the largest fine ever imposed by this agency. Some employees took the liberty of opening accounts for unwilling customers and when that failed, made up fake accounts and even forged signatures. All in the name of sales quotas. The complaint was filed following an investigation that began back in 2013. The employees said they took those measures because of the intense pressure of meeting some very strict and unreasonable sales quotas. Wells Fargo has set aside $5 million to cover refunds to customers. As part of the settlement, Wells Fargo doesn’t have to admit wrongdoing. I guess the $185 million says it anyway. But be sure to stop by your local Well Fargo. Employees there are eager to help you close up any accounts customers don’t want. Well, maybe eager is not the right word.

Overripe…

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Wall Street is not sweet on Apple today as the latest iPhone 7 failed to impress the masses and the analysts. The lackluster reception for the device put a drag on the Street sending the stock down 2.3% at one point. That was its biggest one day fall since June 24th’s Brexit vote, when investors scrambled to unload their Apple shares. Gone is the headphone jack, replaced by the aptly named AirBuds, which are sold separately for a cool $159. How very shrewd – or callous? – of Apple to take that route. The AirBuds innovation sheds a whole new light on Apple’s $3 billion deal to pick up Beats and their headphone technology. But, to be fair, the phone is water and dust-resistant and I’ll be the first to admit that the water-resistant feature speaks to me. Apple has a market value of around $680 billion, but brass at the company have no plans on sharing how many iPhones will have been sold by the weekend’s end. That’s presumably because of the gadget’s less than impressive…impression.